Dumping Worthless Options For 2006 Tax Loss?

Why doesn't your broker buy them?

Stu

I recall the 'worthless stock' question coming up before, and the answer was that if there were no takers, that most brokers would give you zero as a courtesy. Just to allow you to take the loss. Otherwise as long as you are in possession of a stock/option that still has an active ticker (pun intended) you may not take the loss. JOE

If there are no buyers at a penny, wouldn't that suffice to declare the security worthless? Maybe you just need a letter from your broker to that effect. Seth

Lots of Good Brokers will buy the whole lot from you for a penny or maybe a dollar, just to keep a good client. Push harder. __ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

Your post is not entirely clear to me. However, assuming you have excercised your options and the stock is now basically worthless, one would think that your broker would buy them from you for a penny.

No, it seems more like he has options to buy a stock for $50, and the stock is now trading for $3. (Wasn't there someone here who offered to buy any stock holdings for $1? Maybe he'll pay $.01 for options.) Seth

They use to do it that way. But now they issue something called a "Cabinet" order so it can actually be processed on an exchange. A discussion of "Cabinet" orders appears at

I suppose they feel they have to follow the SEC rules on this process. Perhaps on the last day of the year they will buy them back if all else fails, or not. Moderator: I will buy them from you for a penny and you pay all costs. But, check to make sure you will have an actual out-of-pocket loss to write-off. If you did not pay for the options or pay taxes on them when you received them, you will have no loss to write off.

There is an options market. One can buy and sell unexercised options prior to the expire date. However, it the underlying stock price drops way below the exercise price (or itself becomes worthless), then the value of the options can drop to zero because no body wants an option to buy stock at a higher price that is is sell for on the market. I think this is what the OP was talking about.

If one holds options that have not been exercised and the options themselves become worthless (or next to worthless) I don't think there is any tax "write-off" (read deduction), because the options only had a paper value at one time, but the OP has lost nothing because he had never had anything except a piece of paper -- in other words he isn't out any money at all. One cannot deduct "what might have been" if the options had been sold when they _did_ have worth. I had the same problem myself a few years ago. The company I worked for gave me some options to buy the Company stock at $35 when the stock was selling for $45. I could have sold them (the options) 6 months later for about $5,000, but I didn't -- hoping they would become worth more. Along came the downturn of the market and the stock price fell to about $25 and the value of the options to purchase stock at $35 became worthless. The stock never recovered it's price before the options expired, so I received _nothing_, nor could I take a loss on taxes because I never _received_ a gain. Am I wrong, or did everyone else that answered misread that it is options and not stock that the OP was asking about?

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-Ernie-

He had the money he paid for the options. Then he paid it for the options; at their expiration date (unexercised), they disappear, which is considered a sale for $0.

Sure: He pays $100 for an option. The stock goes up, the option goes to $200. Then the stock goes down, and the option expires worthless. He gets a deduction for $100, the $200 is only the value used for kicking himself.

If you didn't pay tax on the value of the options, your cost was $0, so that's your deduction. Seth

=== snipped==> One cannot deduct "what might have been" if the options had

These are not options that I "earned" from employment but rather options I purchased on the options exchange for $X. So my loss is $X and it can be deducted from income tax, if I can "sell to close" in 2006. Otherwise, I take the loss in

2007 when they normally expire.

Ordinarily, the options (which I purchased on the options exchange for $X a couple of years ago) would expire in 2007 at which time the broker would send me a trade slip showing they expired worthless. In further discussions with the broker, they stated they will leave the "cabinet" order in affect until Dec. 28. If it doesn't execute by the end of the day on the 28th, they will execute what they call a "courtesy buy" on the 29th. This will provide me with a trade slip showing the sale in

2006 which is all I need to take the deduction in 2006. Thanks to others who offered to buy for a .01, but it looks like I'm in good shape now.

Yes, the 1/17 expiration date is a clue that these are listed options. For what it's worth, by having a loss occur in the first three months of 2007, it will reduce the total amount of witholding and/or estimated tax payments you're required to make by April 15, 2007. So the benefit of the tax loss is probably only delayed by one quarter, not an entire year. Steve